more on Shenghe’s Greenland deal

A couple of weeks ago, I noticed that Shenghe Resources’ agreement to buy into the Kvanefjeld (Kuannersuit) uranium and rare-earth project in Greenland from ASX-listed GME includes an option to eventually acquire a controlling stake. That simple observation, based on just reading Shenghe’s Shanghai Stock Exchange disclosure, generated some attention after being picked up by Danish daily Politiken and later reflected in Greenlandic media. While rather unremarkable, the 60% option snowballed into something of a controversy after GME started denying its existence, which even prompted Greenland’s resource minister to say they were “investigating” the matter. The fact that GME’s own announcements and press comments didn’t say a word on Shenghe’s further plans for over a week led sources to speculate on the reasons they’d want to keep quiet about what would seem to be rather good news. Yesterday, after letting all this speculation brew for more than a week, GME published an announcement to ‘further clarify’ the issue, now in terms entirely consistent with Shenghe’s announcement. GME also wrote to Greenland’s state broadcaster KNR, admitting for the first time that Shenghe “can be interested in a direct share of the project on a level of up to 60%” (my back-translation from the Danish). Any misunterstandings are blamed on ‘translations’. (Translator-scapegoating is a time-honoured custom in the Chinese business world; cf. this old post of mine, that includes quotes from the Sino-Arctic Bard.)

At any rate, whatever discord ‘translators’ (or the media) might have sown, GME’s current official stance doesn’t contradict Shenghe’s official announcements. We can therefore continue to consider the SSE announcement authoritative.

I don’t normally publish translations of extended passages here, since that feels like doing other people’s homework, but in the interest of readers from Greenland, who are surely entitled to know the details about a project of such importance, I’m going to provide the relevant parts of Shenghe’s SSE disclosure together with a quick-and-dirty (rather literal) translation (original text here).

Page 2, under “Overview of the transaction”.

在科瓦内湾项目取得采矿证且技术优化完成后,基于双方届时洽谈的商业条款,盛和资源可选择收购不超过60%项目权益。

After the Kvanefjeld project has obtained an exploitation permit and completed technical optimisation, on the basis of commercial terms that will be negotiated between the two sides, Shenghe Resources may choose to acquire an interest in the project not exceeding 60%.

Page 9, under “Future cooperation in the project”.

在目标公司就科瓦内湾项目的采矿权申请取得相关格陵兰政府批准且技术合作项目的进展得到各方的满意后,认购方可以书面方式通知公司:其希望取得项目60%的权益。公司收到该通知后,各方将友好协商并购交易的条款,包括收购的交易对价、项目的融资情况,以及成立合资实体(不论是公司还是非公司形式)以开发项目。该并购将受限于所有必要的政府许可。

After the Target Company [GME] has obtained the approval of the Greenlandic authorities regarding the application for an exploitation permit for the Kvanefjeld project and technical cooperation has progressed to the satisfaction of both sides, the Subscriber [Shenghe Leshan] may formally notify the Company [GME] in writing of its intention to obtain a 60% interest in the project. After receiving said notification, both sides shall amicably negotiate the terms for a merger or acquisition transaction, including the value of the transaction, the project’s financial situation, and establish a joint entity (be it of company or non-company type) in order to develop the project. Said merger or acquisition shall be subject to all the necessary government approvals.

Thus spake Shenghe. As anyone who’s been involved in business negotiations with Chinese partners knows, the language tends to be less explicit in Chinese than in English documents. In particular, it could be argued that the Chinese document is ambiguous on whether GME has an obligation to consider Shenghe’s eventual intention. In practice, however, this ambiguity is of little practical consequence, since, as I noted in my previous post, the language implies that there’s no obligation to sell (that’s the ‘amicable’ part).

For completeness, here are the relevant parts of GME’s latest ASX announcement:

As part of the broader strategic relationship and subject to the Company receiving a mining (exploitation) licence for the Kvanefjeld Project and the successful completion of technical cooperation to enhance the Project, Shenghe may notify the Company of their intention to negotiate terms to acquire a direct interest in the Project, in association with project development.

Should this occur, the parties would enter into commercial negotiations in good faith. Any such project level investment and associated agreement would be subject to regulatory and commercial considerations, as well as relevant approvals. There is no contractual obligation on either party to reach such an agreement.

This is consistent with Shenghe’s announcement, except it doesn’t say ‘60%’ and adds an explicit statement that the option is non-binding.

To sum up, a Chinese state-linked company has a non-binding option to buy a majority stake in a major uranium and rare-earth project in Greenland, as I was the first to report in two blog posts. This is important news, but entirely unsurprising, as it has long been known that the main Greenland mining projects are actively seeking to involve Chinese players.

Kvanefjeld is the most important mining project with short and medium-term real prospects in Greenland, and is of global significance as a major REE deposit. The agreement (and especially the 60% option) is very good news for GME, whose shares rose sharply during the weeks leading to the signature of the deal, and are expected to keep climbing as more information emerges on the project’s technical progress. Greenland ministers also welcome the deal, which is also unsurprising given they’ve been actively looking for Chinese investors (with mixed success) for a long time.

On the other hand, the project is not free from controversy. Opposition to the project is known to exist in both Greenland and Denmark. Such opposition mainly comes from two angles: concerns, strongest in Greenland, about environmental issues (both about mining in general and uranium mining in particular) and qualms, mainly operative in Denmark, about China’s influence in the region. Greenland is a democratic society, meaning that engaging the public on these issues is an essential part of developing a mining deal. Chinese companies (and Shenghe specifically) tend to be poorly prepared to deal with that aspect of mining investment, which is one of the reasons partnerships with Western companies are sought. GME have been active in Greenland for quite some time and can be expected to interact with the public in a reasonably smooth way, even if their handling of the 60% storm-in-a-teacup wasn’t that slick. Kvanefjeld, Chinese investment and Chinese labour are also enough of a known quantity in Greenlandic public discourse by now, meaning that the brouhaha that surrounded the Isua project isn’t likely to come back, at least not in the same form.

To my great delight, the online edition of Greenland paper Sermitsiaq, which I frequently read, has reported in Danish on my account of Shenghe’s state links.

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3 thoughts on “more on Shenghe’s Greenland deal

  1. […] 60% stake, a possibility whose presence in the September agreement GME took pains to deny and later confirm. GME’s initial unwillingness to acknowledge Shenghe’s stated intentions was perhaps due […]

  2. […] protested, eventually leading to a GME clarification admitting a 60% non-binding purchase option was indeed there. That makes it two times this year that the Greenland government has learnt about a […]

  3. […] the project enters the production phase. (I gave the exact phrasing in Chinese, with translation, in a later post.) The news subsequently spread to Danish and Greenlandic media, generating a little brouhaha in […]

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